Soldiers fired live rounds at demonstrators who fought back with petrol bombs, rocks and homemade rockets in two major areas of the city as the army tried to enforce a security cordon around a sprawling protest encampment in central Bangkok.

‘We will not retreat,’ the Prime Minister said in a televised statement.

‘We cannot allow the country to be in a condition in which people can establish an armed group to topple the government that they are not happy with.’

Earlier, the Thai army said it plans to move against the 'Red Shirt' protestors' base in Bangkok if they do not disperse.

'There is a plan to crack down on Ratchaprasong if the protest does not end,' said army spokesman Sunsern Kaewkumnerd, referring to the area in Bangkok occupied by protestors.

'But authorities will not set a deadline because without effective planning there will more loss of life.'

The protestors set fire to a number of vehicles, including an army truck.

The violence followed a night of grenade explosions and sporadic gunfire as the army battled to set up a perimeter on the the Red Shirt camp.

The army has now blocked roads on the perimeter of the camp in an attempt to seal it off.

At least 22 people have died in clashes between the 'Red Shirts' and troops since Thursday.

The spokesman said: 'The containment plan is not 100% effective. There are still some people who manage to enter the protest site but the measure has been able to reduce the number of protestors.'

'We'll keep on fighting,' said Kwanchai Praipana, a leader of the protestors.

He again called on the Prime Minister to resign and take responsibility for Thailand's deadliest political crisis in 18 years.

He said supplies of food, water and fuel were starting to run thin but they had enough to last 'days'.

Sean Boonpracong, a spokesman for the Red Shirts, said the situation is extremely dangerous and insisted that the demonstrators were not armed.

UN appeals for calm in Bangkok

UN Secretary General Ban Ki-moon appealed to all sides in Thailand to avoid further violence and return to dialogue.

Mr Ban said he was following the violence and tension in Thailand with 'growing concern' and was 'saddened' by the reports of civilian deaths, including journalists, in clashes between security forces and 'Red Shirt' protestors.

'He appeals to both the protestors and the Thai authorities to do all in their power to avoid further violence and loss of life,' Mr Ban's press service said in a statement.

'He strongly encourages them to urgently return to dialogue in order to de-escalate the situation and resolve matters peacefully,' it said.

Several embassies have warned their citizens not to travel to Bangkok.